Finances, Savings and chipping at the mortgage

Finances, Savings and chipping at the mortgage

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megapixels83

Original Poster:

821 posts

150 months

Saturday 21st March 2015
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Just updating our finances and wondered if any one could provide some help:

Both 32, due to location tax advantageous products like ISA do not apply and the best interest account we can get is 1.26% on any balance. We have £23k in the 1.26% totally liquid cash account. Baby son has funds in the highest interest childs account we can access that pays 2%

Currently paying our mortgage capital and interest and this is 3.99% fixed until 31/3/2017 (again best we can get due to location and LTV). No other debts or finance.

Wife currently on maternity leave for a year not earning but takes a "wage" per month out of a completely seperate savings account not inc in the £23k. After I have paid all expenses, living costs, socializing, treats and savings for our new son I am left with around £1,000 a month which is "surplus".

I always like having a good reserve of liquid cash just incase jobs are lost, big expenses are incurred etc and I also like seeing the ink on paper showing me I have x amount saved. But I feel this £1000 could be better used than just saved so I was thinking over pay the mortgage. I can pay over any amount I wish on a monthly basis so if I have £20 I can pay that in or can pay in £1000, the amount can change as I please.

I am not too worried about retirement as I have a local state pension, works pension and will be looked after else where.

We do want to sell within the next 2 years and buy bigger which will mean increased mortgage but we can port our current one and borrow any difference on top.

How would you divy the £1,000 up. I was thinking a straight 50/50 to cash savings and mortgage. Would you do it differently?


Claudia Skies

1,098 posts

115 months

Saturday 21st March 2015
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Only you can decide how big a "cash reserve" you feel comfortable with.

I'm a huge fan of paying down debt. Not least because the mortgage is paid out of taxed income and any interest earned from savings is itself taxed. So the "real" gap between rate earned (on savings) and rate paid (on mortgage) is even bigger than it looks from the numbers.

gmasterfunk

451 posts

147 months

Saturday 21st March 2015
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I would double check you can overpay monthly. There is still usually a maximum that once you trip over incurs fees and charges.

G.

megapixels83

Original Poster:

821 posts

150 months

Saturday 21st March 2015
quotequote all
gmasterfunk said:
I would double check you can overpay monthly. There is still usually a maximum that once you trip over incurs fees and charges.

G.
Many thanks, yes I can over pay monthly and up to 10% of the oustanding principle per annum so I am never going to hit that level.

DonkeyApple

54,921 posts

168 months

Sunday 22nd March 2015
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I would say that as you are planning to purchase a larger property and therefore I assume increase your property debt within 2 years then cash is absolutely king. You will need cash to enable you to increase your mortgage and the time horizon is far too short for the higher returns of any other asset class to outweigh their risk.

Once you are in the property that you intend to be in for a much longer period that is when you can look at other longer term asset classes to hold.

Claudia Skies

1,098 posts

115 months

Sunday 22nd March 2015
quotequote all
megapixels83 said:
We do want to sell within the next 2 years and buy bigger
How are you planning to fund the deposit you have to put down on the next house?

This is where a cash reserve comes in handy.